Manganese Market Outlook 2012 ExecutiveSummary

Manganese Market Outlook

February 2012

CPM Group

30 Broad Street, 37th Floor

New York, NY 10004

USA

Telephone: 212.785.8320

Fax: 212.785.8325

E-mail: [email protected]

Website: www.cpmgroup.com

CPM GROUP

MANGANESE MARKET OUTLOOK

2

DISCLAIMER

NOT FOR REPRODUCTION, DISTRIBUTION, OR RETRANSMISSION OUTSIDE OF CPM

CLIENT COMPANY WITHOUT WRITTEN CPM GROUP CONSENT.

CPM Group

30 Broad Street

37th Floor

New York, NY 10004

USA

Telephone: 212-785-8320

Telefax: 212-785-8325

E-mail: [email protected]

Website: http://www.cpmgroup.com

Authors: Catherine Virga

Douglas Horn

Justin Honrath

Mu Li

Jeffrey M. Christian, Managing Director

Doug Sherrod, Managing Director, Corporate Financial Advisory

Alec Kushnir, Director, Corporate Financial Advisory

Carlos Sanchez, Director of Price Risk Management

Matthew Taub, Director of Marketing

Catherine Virga, Director of Research

Rohit Savant, Senior Research Analyst

Justin Honrath, Research Analyst

Douglas Horn, Research Analyst

Mu Li, Research Analyst

Erica Rannestad, Research Analyst

Jenee Peele, Administrator

Madhusudan Daga, Consultant

Bhargava Vaidya, Consultant

February 2012

The information contained here has been obtained from sources we believe to be reliable. We believe

this information to be reliable, but do not guarantee its accuracy or completeness. Opinions expressed

here represent those of CPM Group at the time of publication. This material is for private use of sub-

scribers. CPM Group is not soliciting any action based on it. Information contained here should not be

relied on as specific investment or market timing advice. At times the principals and associates of CPM

Group may have long or short positions in some of the markets mentioned here.

CPM GROUP


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1. EXECUTIVE SUMMARY

2. MARKET OVERVIEW

2.1 Manganese Market

2.2 Historic Manganese Metal Price Overview

3. EMM SUPPLY AND DEMAND OUTLOOK

4. EMM PRICE FORECAST

5. SUPPLY

5.1 Global Manganese Reserves

5.2 Mine Production Fundamentals

5.3 Secondary Supplies

5.4 Electrolytic Manganese Metal (EMM)

5.4.1 Chinese Manganese Metal Market

5.4.2 South African Manganese Metal Market

5.4.3 Other Supply

5.4.4 Potential New Producers

6. ECONOMIC OUTLOOK

6.1 Chinas Economic Outlook

7. DEMAND

7.1 EMM Demand Overview

7.2 EMM Demand Forecasting Methodology

7.3 Stainless Steel

7.4 Other Steels

7.5 Aluminum and Other Alloys

7.6 Electronics

7.7 Other

7.8 EMM Demand by Region

8. EMD

8.1 EMD Market Overview

7.2 EMD Supply

7.3 EMD Demand

9. CARBONATE

9.1 Manganese Ore Prices

9.2 Carbonate Supply

9.3 Carbonate Supply Outlook

9.4 Carbonate Demand

9.5 Carbonate Demand by Region

TABLE OF CONTENTS

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9.6 Carbonate Market Outlook

10. SUBSTITUTES

10.1 Other Manganese Products

10.2 Other Substitute Elements

10.2.1 Copper and Copper Alloys

10.2.2 Plastics

10.2.3 Titanium and Titanium Alloys

11. TRADE

11.1 China Trade

11.2 Rest of World Trade

12. ALTERNATIVE SCENARIOS

12.1 High Case Scenario

12.2 Low Case Scenario

13. APPENDIX

TABLE OF CONTENTS

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LIST OF FIGURES AND TABLES

Executive Summary

Chart: Manganese Ore Use

Chart: Electrolytic Manganese Flake Prices (min 99.7% Mn)

Chart: Electrolytic Manganese Metal Production by Country

Chart: Global EMM End-Uses, 2011e

Chart: EMM Demand, Crude Steel Production, and 200-Series Steel Production Growth

Table: Electrolytic Manganese Metal End-Uses and Properties

Chart: Chinese Consumption of EMM per 1,000 People

Table: CPM Group Electrolytic Manganese Metal Projections

Chart: Base Case: Real Manganese Metal Prices and World Supply and Demand Balance

Table: Real Annual Manganese Flake Prices

Market Overview

Chart: Manganese Ore Use

Chart: Electrolytic Manganese Flake Prices (min 99.7% Mn)

Chart: China and EU EMM Prices

Chart: Monthly Prices for Manganese Ore and Select Manganese Products

EMM Supply and Demand Outlook

Chart: Base Case: Real Manganese Metal Prices and World Supply and Demand Balance

Table: Base Case: Real Manganese Metal Prices and World Supply and Demand Balance

EMM Price Forecast

Table: Current Input Cost Comparison

Chart: Real and Nominal Manganese Flake Prices (min 99.7% Mn)

Supply

Table: World Manganese Reserves and Reserve Base

Chart: World Manganese Reserves, 2010

Chart: World Manganese Reserve Base, 2008

Table: Estimated World Carbonate Manganese Reserves and USGS Total Manganese Reserves

Chart: World Manganese Carbonate Reserves

Chart: Manganese Carbonate Ore Flow Chart

Chart: Manganese Oxide Ore Flow Chart

Chart: Chinese Manganese Exploration Expenditures

Table: Chinese Manganese Exploration Expenditures

Chart: Chinese Manganese Reserve Base by Province, 2009

Table: Chinese Manganese Reserves and Resources by Province

Table: The Scale of Manganese Mines by Reserves and Resources, 2008

Chart: Chinese EMM Production Capacity by Province, 2010

Chart: Chinese EMM Output by Province, 2010

Map: Major Manganese Producing Regions in China

Chart: EMM Output from Major Producing Regions in China, 2010

Table: Capacity and Output of Major Chinese EMM-Producing Regions

Table: Number of Manganese Mining Companies by Capacity, 2004 2009 Table: Chinese Imports of Manganese Ores by Country

Table: Chinese Manganese Ore Supply

Chart: Chinese Manganese Ore Supply

Chart: Chinese Manganese Alloys Production

Chart: Manganese Carbonate Concentrate Flow Chart

Table: Capacity and Output of Major Chinese EMM Producers

Table: Chinese EMM Supply and Demand

Chart: Chinese EMM Production Capacity and Output


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Table: Chinese EMM and Alloys Production, Consumption, and Exports

Table: Near-Term Manganese Development and Expansion Projects

Chart: Chinese Manganese Alloys Consumption

Chart: Chinese Manganese Alloys Net Exports

Table: Chinese EMM Operating Cash cost and Total Cost Estimates, 2010

Table: Advantages and Disadvantages of EMM Production with Imported High Grade Oxide Ore

Chart: Components of Operating Cash Cost of Chinese EMM Production

Chart: CNY/USD Exchange Rate and Manganese Prices

Table: Average Price of Power Sold in Major Manganese Producing Provinces

Table: Electrolytic Manganese Metal Production by Country and Select Mine (1990 2010) Chart: Electrolytic Manganese Metal Production, 2010

Chart: Electrolytic Manganese Metal Production, 2021p

Table: Electrolytic Manganese Metal Production by Country and Select Mine (2011p 2021p) Table: Near Term Electrolytic Manganese Development Projects

Economic Outlook

Chart: EMM Demand and World Gross Domestic Product

Chart: Percentage of Population Living in Urban Areas and Per Capita GDP

Chart: Real Gross Domestic Product

Chart: Chinese Consumption of EMM per 1,000 People

Chart: Total Investment in Urban and Rural China

Chart: Chinese Core Price Inflation

Chart: Cumulative New Loans

Table: History of Chinese Five-Year Plans

Table: China: 12th vs. 11th Five-Year Plan Targets

Chart: Chinese Gross Domestic Product: Five-Year Plan (FYP) Targets vs. Actual

Chart: Chinese Per Capita Disposable Income

Demand

Chart: Manganese Ore Market Flow Chart

Chart: Global EMM End-Uses, 2011e

Chart: Chinese EMM End-Uses, 2011e

Chart: Unit Electrolytic Manganese Metal Usage in Crude Steel

Table: Electrolytic Manganese Metal End-Uses and Properties

Chart: China EMM Demand, Crude Steel Production, and 200-Series Steel Production Growth

Chart: EMM Demand: China and the Rest of the World

Chart: EMM Demand: China and the Rest of the World, 2011e

Chart: Chinas Share of Global Commodities Demand Chart: Unit EMM Usage and Nickel Prices

Chart: World Crude Steel Production

Chart: Global Industrial Production and EMM Demand

Table: CPM Group Electrolytic Manganese Metal Demand Projections

Chart: World Industrial Output and Steel Output

Table: Electrolytic Manganese Metal Demand Projections

Chart: Chinas Share of Global EMM Demand Chart: Global EMM Demand Projections: China and Rest of World

Chart: EMM Demand Projections by End-Use

Table: Electrolytic Manganese Metal Demand by End-Use

Chart: Global Stainless Steel Demand, 2010 by End-Use Industry

Chart: Production of 300-Series Stainless Steels and LME Cash Nickel Prices

Table: Common 200-Series Stainless Steel Grades vs. Grade 304 Stainless Steel

Chart: Stainless Steel Production by Category

Chart: 200-Series Stainless Steel Production

Chart: Chinese Steel Consumption by Industry, 2011e

Chart: Chinese Stainless Steel Production

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Chart: The Global Steel Market: Carbon and Special Steels

Chart: Indicative Manganese Contents Across Steel Categories

Chart: Indicative Manganese Contents Across Steel Products

Table: Steel Products, Manganese Content, Performance Requirements, and Selected Applications

Chart: Share of Specialty Steel as a Percentage of Crude Steel Production, 2010

Table: Chemical Composition of Select 3000 Series Aluminum Alloys

Chart: Aluminum Consumption and EMM Demand in Alloys

Chart: World Production of Electronic Equipment

Table: Alkaline and Zinc Carbon Battery Comparison

Chart: Regional EMM Consumption, 2001

Chart: Regional EMM Consumption, 2010

Chart: Regional EMM Consumption, 2021p

Chart: Regional EMM Consumption

Table: EMM Demand by Region

EMD

Table: World EMD Production Capacity (Year-End)

Chart: World EMD Production Capacity, 2010

Table: Chinese EMD Production, Imports, and Exports

Table: Annual Production Capacity of Major EMD Producers China, 2010

Table: Near Term Electrolytic Manganese Dioxide Development Projects

Table: Estimated EMD Supply by Region

Chart: Estimated EMD Supply by Region, 2001

Chart: Estimated EMD Supply by Region, 2010

Chart: Estimated EMD Supply by Region, 2021p

Chart: Estimated EMD Supply by Region

Table: Global Electrolytic Manganese Dioxide Demand and Capacity

Table: Global Electrolytic Manganese Dioxide Demand and Supply

Chart: Global Electrolytic Manganese Dioxide Demand and Supply Balance

Table: EMD Trade Data for Select Countries

Chart: Market Share in Terms of Revenue by Battery Type

Chart: Alkaline Battery Cost Structure

Table: Rechargeable Battery Types

Table: Chinese Battery Production

Chart: Global Electric Vehicle Sales

Table: Electrolytic Manganese Dioxide Market Overview

Chart: Base Case: Global EMD Demand

Chart: Regional EMD Consumption, 2001

Chart: Regional EMD Consumption, 2010

Chart: Regional EMD Consumption, 2021p

Chart: Regional EMD Consumption

Table: EMD Demand by Region

Chart: High Case: Global EMD Demand

Table: Electrolytic Manganese Dioxide Demand Forecasts

Carbonate

Chart: Manganese Ore 4850% Mn fob Europe Spot Price Chart: Regional Manganese Ore Prices

Table: Manganese Carbonate Ore Supply

Table: Manganese Carbonate Supply

Table: Capacity of Major Chinese Manganese Ore Producers, 2011

Table: Major Chinese Manganese Carbonate Ore Mines

Chart: Manganese Carbonate Supply by Region (Metal Content)

Table: Near Term Manganese Carbonate Development Projects

Table: Manganese Carbonate Supply by Region

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Chart: Manganese Carbonate Supply by Region, 2001

Chart: Manganese Carbonate Supply by Region, 2010

Chart: Manganese Carbonate Supply by Region, 2021p

Table: Grades of Ferromanganese

Table: Material Required to Produce High Carbon FerromanganeseHigh vs. Low Grade Mn Ore Chart: Manganese Carbonate Demand by End-Use

Chart: Carbonate Demand by End-Use, 2001

Chart: Carbonate Demand by End-Use, 2010

Chart: Carbonate Demand by End-Use, 2021p

Table: Global Carbonate Demand by End-Use

Chart: Carbonate Demand by Region, 2001

Chart: Carbonate Demand by Region, 2010

Chart: Carbonate Demand by Region, 2021p

Chart: Manganese Carbonate Demand by Region

Table: Manganese Carbonate Demand by Region

Table: Manganese Ferroalloy Producers by Region

Chart: Real and Nominal Annual Manganese Ore Prices ( 48 - 50% fob Europe Spot Price)

Table: World Carbonate Supply & Demand Balance and Prices (Metal Bulletin 48 - 50% fob Europe Spot Prices)

Chart: Real Manganese Ore Prices and World Carbonate Supply and Demand Balance

Chart: Real Manganese Ore Prices and World Carbonate Supply and Demand Balance (in No. Weeks of demand)

Substitutes

Table: Manganese Options in Steel

Chart: Price Differentials Between Various Manganese Products

Chart: Market Share of Manganese Ore Use and 2010 Market Value

Trade

Table: Chinas Exports of EMM by Destination Chart: Chinese Net Exports of Electrolytic Manganese Metal

Table: Chinas Current Export/Import Taxes on Manganese Table: Chinese Foreign Trade Policy Changes: Manganese

Table: Selected Global Policies on Manganese Trade

Alternative Scenarios

Chart: High Case: Real Manganese Metal Prices and World Supply and Demand Balance

Table: High Case: Real Manganese Metal Prices and World Supply and Demand Balance

Chart: Low Case: Real Manganese Metal Prices and World Supply and Demand Balance

Table: Low Case: Real Manganese Metal Prices and World Supply and Demand Balance

Chart: Comparison of Real Manganese Flake Prices for Base Case and Alternative Scenarios Table: Real Annual Manganese Flake Prices, Three Scenarios

Table: Real Annual Manganese Flake Prices, Three Scenarios

Appendix

Table: Real and Nominal Manganese Flake Prices, Annual

Table: Real and Nominal Annual Manganese Ore Prices

Table: Month-End Prices for Select Manganese Products

Chart: Month-End Prices for Select Manganese Products

Chart: Monthly Prices for Manganese Ore and Select Manganese Products

Chart: Annual Prices for Manganese Ore and Select Manganese Products

Table: Manganese Flake Prices, Monthly

Table: Manganese Ore 48 - 50% fob Europe Spot Price

Table: Tariff Schedules for Manganese Ores, Concentrates, and Dioxides

Table: Tariff Schedules for Manganese Oxides and Other Manganese Articles

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Executive Summary

(This Section has been excerpted from

CPM Groups Manganese Market Outlook, 2012 )

CPM GROUP


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EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

Manganese is an essential industrial metal used

as an additive in a wide range of steels, non-

ferrous alloys, and electronic components, as

well as in specialty chemical applications. In

the steel manufacturing process, the addition of

manganese removes impurities such as sulfur

and oxygen. It also optimizes the physical prop-

erties of the steel by improving its strength,

hardness, and abrasion resistance. Of the roughly 15 million mt of manganese pro-

duced (metal content), roughly 89% is upgraded

into alloyed manganese and foundry products.

High, medium, and low carbon ferromanganese

along with silicomanganese fall into this cate-

gory. The remaining 11% of manganese ore is

consumed in the production of metallurgical and chemical products, including electrolytic manganese

metal (EMM), electrolytic manganese dioxide (EMD), lithium manganese oxide, manganese sulfate, and

other chemicals. The primary focus of this report is on electrolytic manganese metal, which is produced

through the electrolysis of a sulphate solution and sold as flakes or as powder. While the EMM market is

dominated by Chinese producers and consumers, structural shifts in supply fundamentals have trans-

formed the metals relative value. In addition to increased regulatory pressures in China, falling Chinese ore grades, and rising production costs are opening up new opportunities for producers outside China. The EMM market is highly concentrated with over 97% of global EMM production sourced from China

in 2010. South Africa, the only other EMM producing country, accounted for the remaining 2.1% of

global supply. Rapid growth in Chinese EMM capacity tied to robust demand fundamentals and lenient

government regulation has crowded out producers in the United States and Japan over the past two dec-

ades. Over the past five years EMM prices have become more reflective of the tightening regulations

governing the Chinese EMM industry. At the same time, with improved steel technology in China,

EMM has grown to be increasingly attractive as a substitute for higher cost alloys in steel. While the

environment for both EMM supply and demand continues to evolve, the metal has established new

structural price supports, partially based on cost inflation throughout the industry. Between 2012 and

2021 real EMM prices are forecast to average $1.92 per pound, which will support project development

activities and provide incentive pricing for bringing new projects online to meet continued growth in

demand. In 2021 alone annual EMM demand may grow by more than 140,000 mt, which is equivalent

to the annual output from roughly four medium-scale operations in China.

Historical and Recent Price Trends

In tandem with the industrialization of China, structural changes in the EMM market started to emerge

in the early part of the last decade. In the 2000s, nominal monthly EMM prices rose more than six-fold

from US$0.36 per pound in the second half of 2002 to $2.41 in June 2007. While a supply shock and

speculation about Chinese regulation helped bolster prices to these highs, prices then remained at ele-

vated levels, averaging roughly $1.76 until the global economic downturn in the fourth quarter of 2008.

Market conditions for the industrial metal quickly shifted course in late September 2008 as the world

economic environment turned decidedly negative. However, EMM prices were rather robust, holding

Slag

13%

High Carbon

FeMn

20%

Silicomanganese

38%

Medium and

Low Carbon

FeMn

10%

Other Alloys

8%

EMM

9%

EMD

2%

Manganese Ore Use

Source: CPM Group, IMnl,company documents

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EXECUTIVE SUMMARY

largely above $1.00. Prices have been leveraged to the high growth Chinese market, with the country

accounting for nearly 87% of global EMM demand. After temporarily falling to a monthly low of $0.99

in November 2008, prices rose in a choppy fashion over the following three years, buffeted by cyclical

destocking and restocking activities in the steel industry. In 2011 manganese flake prices averaged

$1.53. Concerns over the European debt crises and slower growth in China weighed on commodity

prices, in general, in the fourth quarter of 2011. Going forward, many of the underlying fundamentals,

which contributed to elevated EMM prices, namely rising production costs, more stringent Chinese

regulations, and strong demand growth, remain intact.

Supply

While manganese is the 12th most abundant element in the earths crust, reserves are irregularly distrib-uted. Data from the United States Geological Survey (USGS, 2008) showed that South Africa (77%)

held the greatest share of the 5.2 billion mt in the global reserve base, followed by Ukraine with roughly

10%. Manganese ore reserves in South Africa are for the most part high manganese grades (greater than

44% Mn) and in the Ukraine ore grades are typically lower (less than 30% Mn). Global reserves are

more regionally diverse. Nearly three-quarters of the worlds manganese reserves are in the Ukraine (22.2%), South Africa (19.0%), Brazil (17.5%), and India (14.8%), according to 2010 USGS estimates.

Ore reserves in China account for roughly 7.0% of global reserves. However, Chinese manganese ore

grades are low and production grades have been falling by 0.5% to 1.0% per year. China is becoming

increasing dependent on overseas ore supplies. In 2010 imported manganese in ore accounted for

roughly 55% of Chinas total manganese demand. Secondary supplies or scrap is not currently a com-mercially viable, material source of manganese.

Manganese occurs in a variety of mineral compositions, including in the form of manganese oxides and

hydroxides, manganese-bearing carbonates, and silicates. However, all types of manganese ore require

0.00

0.50

1.00

1.50

2.00

2.50

3.00

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Electrolytic Manganese Flake Prices (min 99.7% Mn)

Bi -Weekly, Through January 2012

US$ / Lb. US$ / Lb.

Source: Metal Bulletin

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EXECUTIVE SUMMARY

processing to transform the feedstock into useable products. Both silicomanganese and EMM are pri-

marily produced from low grade ore. However, falling ore grades and increased political pressure to re-

duce the environmental impact of the manganese industry have made EMM production from high grade

ore more attractive, despite higher capital expenditures. In 2010 EMM total cash costs for Chinese pro-

ducers exporting EMM fabricated from domestic low grade carbonate ore (10% Mn) were roughly

$1.32, nearly 13% more expensive than producing from imported high grade ore (45% Mn). Currently

the vast majority of Chinese EMM output is produced with domestic ore, while imported ore is use for

alloy manganese products. The Chinese government has taken concerted actions to limit exports of ma-

terials with energy intensive, polluting production processes. When selling to overseas markets, Chinese

producers must pay a 17% Value Added Tax (VAT) on most input costs and a 20% export tax.

Despite pressure from the central government for consolidation in the industry, the manganese mining

sector remains highly fragmented with roughly 600 manganese mining companies. The EMM market is

slightly more concentrated, with less than 200 EMM producers. To meet long term strategic plans, the

government will continue to promote industry concentration by eliminating small EMM producers with

outdated technologies. Chinese industry participants expect that regulators will target small EMM pro-

ducers with a single production line of less than 5,000 mt in annual capacity during the current Five

Year Plan.

Falling ore grades, increasing operating costs, and low recoveries are weighing on Chinese production.

China is estimated to have produced 1.38 millon mt of EMM in 2010. Between 2011 and 2021 Chinese

production is forecast to grow at a CAGR of 5.4%, compared to a CAGR of 30.0% during the previous

decade. The tightening of environmental standards and industry restructuring initiatives are expected to

reduce surplus capacities in the long run. Capacity utilization stood at roughly 63% in 2010.

0%

10%

20%

30%

40%

50%

60%

0

500

1,000

1,500

2,000

2,500

3,000

1990 1995 2000 2005 2010 2015p 2020p

Probable New Supply United States

Japan South Africa

China Y-o-Y % Growth

Electrolytic Manganese Metal Production by Country

Y-on-Y % GrowthThousand Metric Tonnes

Source: CPM Group, Company Reports, Industry Sources

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EXECUTIVE SUMMARY

South African producer, Manganese Metal Company, also has 30,000 mt of EMM production capacity.

Despite South Africas mineral wealth, increased demand for non-Chinese, dependable EMM supplies is not expected to be met by new EMM capacity in South Africa due to the countrys inadequate electri-cal grid. EMM Demand

Manganese is the desired alloying element for

applications in which cost-savings and moderate

corrosion resistance is preferred. Thus, EMM is

employed in a wide range of applications, includ-

ing 200-series stainless steels used for mostly

consumer applications, other steels, non-ferrous

alloys in the canning industry, electronic compo-

nents, and specialty chemical applications. The widespread use of EMM in steel-related ap-

plications is reflected in the breakdown of EMM

demand. Nearly 74% of EMM demand is derived

from the steel sector. Specialty alloys such as alu-

minum alloys account for 12% of global demand,

while other end-uses, including electronics and

chemicals, account for the remaining 14%.

EMM demand is largely driven by fluctuations in Chinese steel production. China accounts for over

87% of global EMM demand, with the steel sector accounting for nearly 82% of domestic consumption.

Urbanization in many emerging economies and growth in Chinese industrial production over the past

decade have resulted in strong EMM demand growth rates, despite the 2008 - 2009 downturn in global

economic activity. Improvements in economic sentiment over the course of 2010, following the eco-

nomic recession, encouraged increased capital expenditures, fixed asset investments, and personal ex-

penditures over this period.

EMM Consumption and the Steel Sector

EMM is mainly used as an alloying element in the steel sector. Steel would not be able to achieve the

necessary tensile strength, toughness, stiffness, wear resistance and hardness in the absence of manga-

nese additions. EMM specifically is used in place of other manganese products, such as ferromanganese,

as an alloy when the desired end-product requires very low levels of impurities. In ferromanganese, for

instance, higher impurity levels such phosphorous degrades the weldability of steel. In other cases,

EMM is preferred due to the specific requirements of certain steel production processes. EMM demand from the steel industry accounts for nearly 74% of total demand. EMM can be found in

stainless, carbon, construction, engineering, non-magnetic, Hadfield, and HSLA steels. Steel-based

EMM demand has exhibited stronger growth rates than global crude steel production over the past dec-

ade due to improvements in the quality of 200-series stainless steel, the EMM markets leverage to the Chinese market in terms of both production and consumption, and nickel substitution. CPM Group ex-

pects EMM demand from the steel sector to increase at a compound annual growth rate (CAGR) of

6.7% from 2011 to 2021, rising from 1.1 million mt in 2011 to 2.2 million mt in 2021.

Stainless Steel42%

Other Steels32%

Mn Alloys12%

Electronics2%

Other12%

Global EMM End-Uses, 2011e

Source: CPM Group

Global EMM End-Uses, 2011e

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Stainless Steel The largest end-use of EMM is in stainless steel, accounting for nearly 42% of global demand. In low to

moderate-corrosion applications such as home appliances, kitchenware, and ornamental fittings, 200-

series grades have been increasingly consumed due to the cost advantages over pricier, high nickel-

content steels. EMM also is employed in high-performance stainless steels that require minimal carbon

contents. The increase in the 200-series market share of stainless steel production also reflects improved production processes. Other Steel Other steel types collectively account for 32% of global EMM demand. Other steel grades in this cate-

gory include construction steels, engineering steels, non-magnetic steels, Hadfield steels, and HSLA

steels. These steel grades are used in the automotive, construction, energy, infrastructure, and transporta-

tion industries.

0%

25%

50%

75%

100%

125%

150%

175%

200%

225%

250%

2002 2003 2004 2005 2006 2007 2008 2009 2010

EMM Demand

200-Series Production

Crude Steel Production

Year-on-Year Change

China: EMM Demand, Crude Steel Production and 200-Series Steel Production Growth

Annual, 2002 - 2010

Source: CPM Group, ISSF, World Steel, Antaike

*

* Growth in 2002 was 717.5% year-on-year

750%

EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

Other EMM Applications

Aluminum and Other Alloys Aluminum and other alloys are the third largest consumer of EMM by end-use, accounting for nearly

12% of global demand. Manganese is found in aluminum, magnesium, copper, nickel, titanium, and zinc

alloys. Of these, aluminum alloys are the largest consumer of EMM in the form of briquettes, which can

contain anywhere from 75% - 90% manganese. The addition of manganese to aluminum alloys is a low-

cost method of increasing hardenability, corrosion resistance, deoxidization, and castability properties,

as well as imparting mechanical strength to the aluminum alloy. These alloys are used extensively in

aluminum cans. EMM demand from this end-use is expected to increase from 181,355 mt in 2011 to

322,373 mt in 2021, a 5.9% CAGR. Electronics Electronics account for almost 2% of EMM consumption by end-use. EMM is commonly used as a raw

material for soft ferrite powder production. Soft ferrites are used in computers, communications equip-

ment, automobiles, televisions, and vending machines for their electromagnetic properties. EMM con-

sumption in this end-use is expected to continue to reflect global production trends in electronic equip-

ment, growing from 30,676 mt in 2011 to 50,376 mt in 2021, a 5.1% CAGR. Other Other end-uses collectively account for 12% of global EMM demand. Of these end-uses, batteries are

the largest consumer of EMM. EMM is sometimes used in dry-cell zinc-carbon, alkaline, and lithium-

based batteries, though EMD is commonly prevalent in the latter two instances. Other end-uses include

dyes, disinfectants, catalysts for chlorination reactions, various agricultural uses, anti-bacterial and anti-

fungicidal agents, and in welding rod electrodes. Other end-uses are expected to grow at a CAGR of

5.0%, from 183,614 mt in 2011 to 299,050 mt in 2021.

Electrolytic Manganese Metal End-Uses and Properties

End-Use Properties Effect

Steel

- Strong sulphide former

- Deoxidant

- Weak carbide former

- Alloying element

-Reduces undesirable amount of sulphur and oxygen in steel

- Improves the response of steel to quenching

- Enhances mechanical properties of steel by increasing hardenability rate

Non-ferrous Alloys - Deoxidant

- Alloying element

- Enhances corrosion resistance of Al alloys

- Improves copper alloys castability and strength

- Can replace part of the Nickel in Ni-Al alloys

Other- Depolarizer

- Bacteridal

- Fungicidal

- Used in dry-cell batteries in the manganese dioxide form

- Used in purifying drinking water, treating waste water, and odour control

- Used for controlling crop and cereal diseases

Source: CPM Group, company documents

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EXECUTIVE SUMMARY

Focus on Chinese EMM Demand

OECD economies play a marginal role in the

EMM market given that China overwhelmingly

dominates consumption. Thus, it is necessary to

emphasize both the importance of China in the

EMM market and the growth in consumption that

has occurred over the past decade. On a per-ton

basis, Chinese EMM consumption is nearly ten

times higher than it was at the start of last decade.

EMM demand per-capita is expected to continue

to grow as urbanization lends support to demand

for consumer products, many of which employ

EMM-containing 200-series stainless steel. Chi-

nese manufacturing activity is expected to be

buoyed by healthy fixed asset investment levels.

Substitutes

CPM Groups analysis of historical market developments, technical considerations, and relative eco-nomics has concluded that manganese is used mostly as a cost-saving alloy, and the scope for EMM

substitution is moderate. Three main substitution threats may result in lower volumes of EMM over the

projection period, including substitution to other manganese products, switching between steel grades

with different manganese contents, and to other elements such as copper, titanium, plastics, and other

metals. With regards to the substitution of EMM to other products, consumers have historically shifted some of

their EMM requirements to products, such as ferromanganese. The major determinants of this type of

substitution are relative pricing and availability of supplies. For instance, consumers in Japan have tem-

pered demand for EMM to reduce their exposure to Chinese EMM exports. However, Chinese substitu-

tion has been limited, due to readily available EMM supplies, Chinese stainless steel producers prefer-ences for EMM, and Chinese high-grade ore quantities necessary to domestically produce other manga-

nese products are limited.

CPM Group Electrolytic Manganese Metal Projections

Compounded Annual Growth Rates

2005 - 2011e 2011e - 2016p 2016p - 2021p 2011e - 2021p

Steel 22.8% 7.2% 6.1% 6.7%

Mn Alloys -5.5% 6.7% 5.2% 5.9%

Electronics 6.6% 5.9% 4.2% 5.1%

Other 30.2% 6.1% 3.9% 5.0%

Total 15.5% 7.0% 5.7% 6.4%

China 45.5% 7.2% 5.9% 6.6%

Rest of World -7.6% 5.5% 4.2% 4.9%

Global 9.4% 7.0% 5.7% 6.4%

So urce : CP M Gro up

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2001 2006 2011p 2016p

Chinese Consumption of EMM per 1,000 People

Annual, Select Years

Source: CPM Group, IMF

mt

CPM GROUP


17

EXECUTIVE SUMMARY

Historically, EMM has been employed in 200-series chromium-manganese (CrMn) low-nickel steels

during times of high nickel prices. The market share of 200-series steels to total stainless steel produc-

tion has increased significantly in recent years due to the cost advantages over pricier, high nickel-

content steels. If lower nickel prices result in a greater share of 300-series steels relative to 200-series

over the projection period, demand for EMM would be adversely affected. Given the importance of cost reduction in applications where manganese is used in lieu of nickel, copper

is one of the main substitutes for manganese. Plastics also may continue to be an increasingly important

substitute application for household steel items and aluminum canning. Lastly, titanium can be a substi-

tute for manganese in some niche applications, though its higher cost would likely limit such substitu-

tion.

EMM Supply and Demand Outlook

Global supply and apparent demand of electrolytic manganese have historically been closely aligned.

Increased demand for electrolytic manganese metal between 2000 and 2007 ushered in a substantial and

sustained shift in the markets dynamics. The pace of new supplies accelerated as a result. This overca-pacity effectively kept a ceiling on prices, which ultimately led to plant closures outside of China. As of

2010 Chinese EMM capacity was up nearly 16-fold since the beginning of the last decade at 2.2 million

mt. Meanwhile, only one other country was producing EMM compared to three in 2000. Over this 11

year period the market recorded deficits on an annual basis for more than half of those years. However,

the scope of these supply shortfalls has been fairly modest, averaging less than 2 weeks of demand over

those six years.

0.00

0.40

0.80

1.20

1.60

2.00

2.40

2.80

(40,000)

(30,000)

(20,000)

(10,000)

-

10,000

20,000

30,000

1993 1996 1999 2002 2005 2008 2011 2014p 2017p 2020p

Base Case: Real Manganese Metal Prices and World Supply and Demand Balance

Annual, Projected through 2021p

Metric Tonnes US$/ Lb.

Real Manganese Metal Prices (RHS)

Deficit (LHS)Surplus (LHS)

ProjectionsActual

Source: CPM Group, Company Reports, Industry Sources

CPM GROUP


18

Over the past couple of years, restrictive export Chinese policies have led to significant amounts of

smuggling to evade export duties. The Chinese government is expected to continue to step up its en-

forcement of the EMM industry. After more than a decade of primarily depending on Chinese EMM

production, CPM Group expects new EMM capacity may come on-stream between 2013 and 2016 from

five Probable Projects in the Ukraine, Gabon, Kazakhstan, Mexico, and the United States. Other possible

sources of EMM supply could come from development projects in Canada, Finland, and United States.

During the second half of the forecast period China could become a small net importer at times.

EMM Price Forecast

The need for new capacity outside of China and the rising cost

structure of existing capacity in China are the primary factors

driving CPM Groups price forecast. Present operating costs and projected costs going forward are not supportive of prices

reverting back to their historical averages of $0.45 to $0.85 per

pound. While CPM Groups forward supply curve incorporates supplies from new producers outside of China, Chinese EMM

output is still expected to account for nearly 90% of global sup-

plies in 2021. For Chinese producers to maintain current pro-

duction levels, significant capital investments need to be made

to upgrade existing technology and to preserve domestic ore

resources. Over the 10-year period prices may rise at a CAGR of 4.8%,

accelerating toward the end of the period to allow for more sup-

plies from marginal cost producers. Between 2012 and 2016,

real prices may average $1.72 and rise roughly 23% during the

second half of the projection period to average $2.11 on an an-

nual basis. Over the next 10 years real electrolytic manganese

metal prices are forecast to average $1.92 per pound, reaching

an annual high of $2.30 in 2021. This is nearly double the an-

nual average price over the last 10 years.

Overview of Electrolytic Manganese Dioxide Market

Electrolytic manganese dioxide consumes roughly 2% of global manganese supplies. Similar to the

EMM market, the majority of global EMD capacity is located in China. However, production capacity is

more regionally diverse with the United States (14.8%), Japan (8.0%), South Africa (7.1%), and Greece

(5.4%) accounting for more than a third of total capacity in 2010. EMD is mostly used in alkaline and other small-scale, consumer electronics batteries. Alkaline batteries

are a low growth end-use, expected to track well below GDP growth rates over the forecast period. In

small-scale electronics, EMD use is projected at historical growth rates of 4%. The highest potential

growth segment for EMD is in large-scale rechargeable batteries used in electric vehicles and electron-

ics. At present, the rechargeable manganese battery segments account for less than 10% of total EMD

demand. As electric vehicles penetrate the auto market over the coming decades, EMD demand stands to

benefit. Demand from rechargeable batteries could reach 25% by 2021, according to CPM Group esti-

mates. There remains a large degree of uncertainty in the electric vehicle industry, however. Thus, CPM

Group has accounted for this uncertainty by including an alternative high case demand scenario, in

which electric vehicles account for a greater share of total vehicle sales than in the base case.

Real Annual Manganese Flake Prices

Base = 2011 U.S . Dollars

Per Pound

Base Case

2012p $1.45

2013p $1.65

2014p $1.75

2015p $1.85

2016p $1.90

2017p $1.95

2018p $2.00

2019p $2.10

2020p $2.20

2021p $2.30

Averages

2012p - 2021p $1.92

Source: CPM Group

EXECUTIVE SUMMARY

CPM GROUP


19

EXECUTIVE SUMMARY

EMD demand is projected to rise from more than 349,000 mt in 2011 to nearly 608,000 mt in 2021, a

5.7% CAGR. In contrast to EMM demand projections, EMD demand growth is expected to accelerate

after 2015, reflecting higher market penetration rates by electric vehicles. From 2016 to 2021 EMD de-

mand is expected to grow at a CAGR of 6.1%, compared to a 5.3% CAGR from 2011 to 2016.

The CPM Group Electrolytic Manganese Market Outlook is part of a series of long-term studies of

ferroalloy metals markets. These studies are used by producers for strategic planning and in the prepa-

ration of technical reports. In addition, consumers, institutional investors and physical traders supple-

ment their internal research with CPM Groups comprehensive analyses, conclusions, and projections. The reports also serve as authoritative reference guides for electrolytic manganese market statistics.

About CPM Group:

CPM Group is the worlds premier commodities research and consulting company. The company is heavily focused on precious, industrial, and specialty metals, in addition to undertaking research and

analysis across all commodities markets. In the ferroalloy industry CPM Group has developed an unsur-

passed expertise in molybdenum, vanadium, manganese, and chromium, as well as other minor metals.

CPM Group provides a suite of research and consulting services related to the financial management of

commodities exposure, including fundamental market research and analysis, consulting and advisory

services, commodities management and asset management services, and corporate finance advisory.

Founded in 1986, CPM Group has extensive experience in commodities research, trading, banking, and

financing. CPM Group is known for its research and analysis of the metals markets, its overall economic

analysis of commodities markets, and its expertise in financial engineering, using derivatives to structure

optimized positions for commercial hedgers and institutional and high net worth individual investors.

CPM Group clients include major producers, processors, market intermediaries, and industrial users of

commodities. Institutional investors engaged in investing in commodities and commodities producing

companies retain CPM Group for research, analysis, and advice on managing their financial exposure to

these markets. Institutional investors, hedge funds, private equity funds, and family offices rely on CPM

Group for accurate analyses of commodities markets. Central banks; foreign ministries; and agencies

involved in attracting foreign direct investment, strategic metals policies, energy and agriculture; and

sovereign wealth funds have drawn on CPM Groups knowledge and experiences since the 1980s in these areas.

CPM Group Commodities Research, Consulting,

Asset Management, and Investment Banking

Manganese Market Outlook 2012 ExecutiveSummary

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